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How safe is the Kingfisher dividend payment?

12th Jul by Jack Brumby

Kingfisher (LON:KGF) is a large cap Home Improvement Products & Services Retailers operator whose brands include B&Q, Castorama, and Screwfix.

For the fiscal year ended 31 January 2019, Kingfisher plc revenues increased less than 1% to £11.69bn and net income decreased 55% to £218m. The group pays out an attractive rolling dividend yield of 4.92%, which is forecast to fall by -0.16% over the next year. But, given the plunge in revenue, can it afford to continue these payments?

Dividend cover (earnings per share divided by dividend per share) of two times or above is strong. Anything below one and a half times suggests we need to look a little closer.

GET MORE DATA-DRIVEN INSIGHTS INTO LON:KGF »

Computing Kingfisher's dividend cover ratio

Poor dividend cover means that a small decline in earnings could consign your dividend payment to the scrap heap. It could also mean that the company is forgoing profitable investment opportunities that could generate future earnings growth. With that in mind, let’s take a look at Kingfisher dividend cover.

We can get all the information we need to see if Kingfisher has an adequate level of dividend cover from the group’s StockReport. The group’s FY19 EPS was 10.2p and its FY19 dividend per share was 11p

Divide the former by the latter and we get a trailing twelve-month dividend cover for Kingfisher of 0.94. This is below the 1.5 times cover limit that marks the point at which we should do some further digging on dividend sustainability and safety. The group's normalised earnings per share figure was substantially higher, however, at 32.4p. If this figure better reflects Kingfisher's trading performance, then its dividend is covered nearly three times by earnings, which becomes much more interesting.

Income investing: what you need to know

For many investors, dividends are a vital part of their long-term strategy. That's why we have created a variety of income-focused stock screens, such as the Best Dividends Screen, to identify promising candidates for income portfolios. Take a look and see if any of the qualifying stocks might be worthy of further research.

As for Kingfisher (LON:KGF), you can find a wealth of financial data on the group's StockReport, including information on the group's past and forecast dividend payments. If you’d like to discover more about dividend investing, you can read our free ebook: How to Make Money in Dividend Stocks.

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